Emma Harrison, chairman of A4e, who got 87% of the company's £11m dividends last year. Photograph: Christopher Thomond for the Guardian

The record of welfare-to-work company A4e has come under scrutiny from MPs, as they questioned why a company with an "abysmal" record of delivering government programmes had been awarded new contracts to provide the coalition's Work Programme when it launched last summer.

Details of large dividends received by Emma Harrison, A4e's chair, also emerged during questioning of the company's chief executive officer, Andrew Dutton. He confirmed that all of its UK turnover last year, estimated at between £160m and £180m, derived from government contracts, and of the £11m paid in dividends to the company's five shareholders, 87% went to Harrison.

During a session on Wednesday on the introduction of the Work Programme, MPs on the public accounts committee put a series of critical questions to the civil servants responsible for devising the scheme about the way that contracts for the £5bn Work Programme were awarded.

The committee's chair, Margaret Hodge, the Labour MP for Barking, asked civil servants why welfare-to-work companies with a poor track record of fulfilling previous contracts had been given new work.

"It seemed rather surprising to me that you did not have to regard to the past performance of contractors. Why not?" she asked. "A4e … their performance on [Pathways to Work] was abysmal … Why didn't you look at past performance of contractors?"

Her fellow committee member Richard Bacon, Conservative MP for south Norfolk, added: "Are you seriously saying that you could not take into account that A4e had dreadful performance in one of the immediate predecessor programmes?"

He said that the company got 9% of clients into work in the Pathways to Work programme – it had been expected to deliver 30%.

"Despite that seriously poor track record, are you seriously saying that is not something you could take into account?"

The permanent secretary for the Department for Work and Pensions, Robert Devereux, replied: "I am saying that." He explained that because other companies, which had not been involved in providing previous welfare-to-work contracts, were also tendering for contracts, it would not have been possible to look at the past performance of companies that had previously worked in this area.

He also pointed out that most of the welfare-to-work providers had underperformed during the previous scheme.

A4e won five main contracts to deliver the Work Programme when the results of a tendering process were announced last April, along with a wide range of other companies including Serco, G4S and Working Links.

The committee spent some time trying to establish where money paid to A4e to deliver government contracts ended up.

"We have a small group of shareholders. The dividends that we pay to the shareholders reflect the personal risk that they have. Having owned a company for over 21 years, at times they have had to effectively put their own homes and mortgages on the line," Dutton told MPs. He said some of the company's profits were ploughed back into the business.

Hodge said it was important to follow taxpayers' money along the chain, stating: "Your top management last year took £4.7m … you pay £11m dividends."

She added: "You're one of the first examples we have had of a company which is entirely dependent on public contracts for your existence. We, in terms of looking for value for money, have an interest in following the pound. All your business is public contracts. You and Emma Harrison have to accept that there will be a different interest in the remuneration and profits made because the profits you make come from the taxes that ordinary, hard-working people pay."

Civil servants told the committee that the Work Programme's new payment-by-results model would ensure that companies such as A4e would only get large payments for implementing the scheme if they got large numbers of benefit claimants into long-term, secure work.

"I genuinely believe that we as providers have to perform," Dutton said.

There was discussion of whether companies would be able to make money by "creaming and parking" – creaming off and helping those who are easier to help, and parking those who are unlikely to find work, having taken the initial government payment of £400 for signing them up to the scheme.

Civil servants said that companies would not make money if that was the approach they took.

There was some analysis of a recent National Audit Office report which suggested that the forecasts for the numbers of people that the programme could get into work were over-optimistic. Devereux said he was confident that the Work Programme would get the forecast number of people into work, despite the fact that the economic environment had significantly deteriorated since the programme was devised.

Fiona Mactaggart, Labour MP for Slough, was concerned about the possibility of "job substitution" – companies delivering the Work Programme getting paid for pushing their clients into jobs that would otherwise have been filled by other jobseekers, without the need for a third-party payment.

"In my constituency, a lot of people are being given work experience, unpaid, in retail, and then the retailers, I think, are being directly encouraged to employ people who have been given this one-month or two-, three-month interview process … and when they're offering jobs, a company like A4e, which operates in Slough, can say to Primark, if you want more of our free workers, I hope you are going to give our people 20-hour-week jobs. I'm sure it's not quite as overt as that, but I believe there is a risk of that happening.

"How in this system do we protect against the risk of job substitution?"

Devereux said that if the long-term unemployed were helped into work that was a positive development. "It is in society's interest to get people who have been out of work a long time into jobs," he said.

Alan Cave, senior responsible owner for the Work Programme, told the committee: "It is an observed big change in the labour market over the past 10 years that more and more companies are using work experience as a tester of whether someone might be a full-time employee. That's the reality. The providers have become quite skilful at taking someone coming on to the programme with a very weak CV … finding them some quick blocks of work experience, which will not be paid, [but] which will greatly improve their chances of getting a job that will be paid."

More on this story

A4e boss Emma Harrison paid herself £8.6m last year. Nothing unusual for a top banker perhaps. But her company is funded by the government to find jobs for unemployed people. And it's being investigated for fraud